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On 30 October 2024, the Australian Bureau of Statistics (ABS) announced some good news - the Consumer Price Index (CPI) dropped to 2.8%.
This is significant because it’s the first time since March 2021 that inflation has dipped into the RBA’s sweet spot of 2-3%.
It’s a refreshing change from the previous quarter’s 3.8%, suggesting that those pesky inflationary pressures might finally be easing after a long stretch of high rates.
However, before you start celebrating with a mortgage refinance party, it’s wise to temper your expectations about interest rates.
Experts are advising caution
While the headline inflation figure looks promising, the RBA is still keeping a close eye on underlying inflation which remains above target levels.
Governor Michele Bullock has made it clear that even though we’re seeing some improvement in overall inflation, we need to see core inflation stabilise before any monetary policy changes can happen.
So, while it’s nice to see some positive movement in the CPI, it doesn’t automatically mean that interest rates will drop straight away.
The RBA is likely to take its time in assessing whether these trends are sustainable before making any decisions about cutting rates.
Implications for cash rates and interest rates in 2025
As we look ahead to 2025, financial analysts predict that the RBA will maintain the current cash rate with potential cuts not anticipated until February 2025.
The consensus among economists is that a gradual easing of rates could then begin, contingent upon sustained improvements in underlying inflation metrics.
While there is optimism regarding future rate cuts, the RBA prefers to observe trends rather than react hastily to single data points and is likely to adopt a cautious approach.
This means that borrowers should prepare for a slow transition rather than an immediate drop in interest rates.
Preparing for potential interest rate drops
Given the current economic indicators, mortgage clients should consider proactive measures to position themselves favourably as interest rates potentially decline
in 2025.
Here are some steps to take:
• Review your current mortgage
Understand your existing terms and conditions. Identify whether you are on a fixed or variable rate and what penalties might apply if you decide to refinance early.
• Consult with our team
Engaging with our finance team can provide insights into market trends and help you navigate your options effectively. We can offer tailored solutions based on your situation and goals. Lenders have started to offer incentives now, knowing rate drops are imminent.
• Consider refinancing options
If you are currently paying a higher interest rate, it may be beneficial to explore refinancing opportunities now before rates drop further. This could save you money in the long run.
• Stay informed about market conditions
Keep an eye on our industry updates regarding inflation and interest rates. Understanding these trends will empower you to make informed decisions.
Why you should book an appointment with our team now!
Here’s why:
While the recent drop in the CPI is encouraging and signals a potential shift in monetary policy, mortgage holders should remain cautious and proactive.
By preparing now and engaging with us, you may position yourself advantageously for the anticipated changes in interest rates throughout 2025.
Thanks for reading this month’s property and finance update.
We look forward to hearing from you soon.
